Multifamily Housing: A Review of Theory and Evidence

Zietz, Emily N., The Journal of Real Estate Research

Abstract The growing importance of multifamily housing as a viable choice of residence is evidenced by the number of empirical and theoretical studies in the real estate literature. Researchers have investigated the role of this sector of the real estate market for decades. This survey article examines more than one hundred studies and categorizes them into five groups: economic and market efficiency issues; property valuation and appraisal issues; regulatory, zoning and clustering of multifamily complexes; costs, returns and rental income issues; and demand, vacancy and occupancy issues. This study seeks to provide a concise, categorical presentation of findings on issues related to the environment and performance of multifamily housing.

Introduction

Multifamily housing serves a vital role in the real estate marketplace as one in four households in the United States live in multifamily homes (www.nahb.com, 2002). Many desirable features of multifamily housing as well as changing demographics have exacerbated the popularity of multifamily housing as a housing choice. The busy lifestyles of many Americans who desire freedom from the responsibility of maintenance costs and repair time, the mobility of the workforce and the convenient locations of most multifamily complexes have caused many households to elect multifamily complexes as their residences. The avoidance of property taxes and other homeowner costs is another incentive to seek multifamily housing. The National Association of Home Builders (NAHB) reports that the 26 million multifamily residents in the U.S. are similar in education and work status to all U.S. households, but they typically have fewer children to send to public schools and similarly make smaller demands of the roads and water systems (www.nahb.com, 2002). The decline of married couple households has an obvious impact on residential choice, both in terms of location such as the suburbs and tenure choice (DeLisle, 2001). For example, unmarried households may be more likely to rent rather than to own. The significance of multifamily housing as a viable housing choice is evidenced by the emphasis placed on it in the real estate and economics literature.

The definition of a multifamily house varies by organization. A multifamily home is considered by NAHB as a building containing two or more units (NAHB.com, 2002). The NAHB further estimates that today the average multifamily unit has 1,115 square feet and includes more amenities than in the past. Most new multifamily units (55%) have two or more bathrooms and 68% more have bedrooms than older properties. Congress defines multifamily housing as "any project with four or more units that includes condominiums, apartments, and single-story" (www.fairhousing.vipnet.org). This definition is used for legislative and regulatory purposes in enforcing requirements for multifamily design and construction in the Fair Housing Law of 1988. The U.S. Department of Housing and Urban Development HUD) released a study defining a multifamily mortgage as a loan secured by a property with five or more residential units, including cooperatives as well as rental units (Segal and Szymanoski, 1998).

The economic impact of new multifamily construction is far-reaching. The impact affects a myriad of economic sectors from those who excavate and develop the site to those who design, finance and sell the finished complex. NAHB estimates that, in 2000, nearly 331,000 multifamily homes were produced in the U.S., generating 341,000 jobs (defined by worker-years of employment), $12.2 billion in wages and $6.5 billion in federal, state and local taxes (NAHB, 2000). The local economic community is affected positively through development and construction jobs, sales of materials and products needed for construction, and projects providing an incentive for the community of new residents to spend additional money locally. Over a 10-year period for an average city, the typical 100-unit multifamily project generates 582 jobs, $23. …

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